The International Monetary Fund (IMF) has acknowledged an unexpected level of durability in the world economy amid ongoing trade disruptions, including those stemming from tariffs introduced under former U.S. President Donald Trump. In its latest World Economic Outlook (WEO), the IMF raised its projection for global GDP expansion in 2024 from 3.0% to 3.2%, while maintaining its 2025 estimate at 3.1%. The United Kingdom sees a minor improvement in its 2024 outlook—upgraded from 1.2% to 1.3%—though its 2025 forecast has been slightly revised downward to match that figure. n nDespite these adjustments, the institution cautioned that current stability may be misleading. It attributed the apparent resilience to temporary behaviors, such as consumers and businesses accelerating purchases ahead of tariff implementation, which masked deeper economic strain. Drawing parallels with the delayed impact of Brexit on business investment, the IMF noted that major policy shifts often take years to fully affect economic decisions. n nConcerns remain elevated over several fronts: tightening immigration policies in key economies, particularly in the United States, could reduce GDP by between 0.3% and 0.7%, with disproportionate inflationary pressure likely in labor-intensive sectors like construction, agriculture, and hospitality. Additionally, the IMF flagged elevated stock valuations as a potential risk, warning that a reassessment of expected returns from generative AI could trigger a sharp correction in financial markets. n nRecent data show that investment in AI infrastructure, including data centers, has significantly boosted capital spending. A pullback in this area could therefore lead to a pronounced decline in overall investment. On the UK specifically, the IMF expects inflation to reach the highest level among G7 nations in 2025 and 2026, revising its average forecast upward to 3.4% for 2025 from 3.2%. Inflation is projected to ease to 2.5% in 2026, still above earlier projections of 2.3%. n nPierre-Olivier Gourinchas, the IMF’s chief economist, emphasized that while recent inflationary pressures in the UK stem from transitory factors, persistent wage growth and rising inflation expectations pose upside risks. He advised the Bank of England to proceed cautiously with any plans to lower interest rates. Regarding rising yields on UK government debt, Gourinchas attributed the trend largely to global financial conditions rather than domestic instability, stating that no major risks are currently evident. n nUK Chancellor Rachel Reeves welcomed the revised growth outlook, noting that this marks the second consecutive upgrade from the IMF and aligning with the country’s strong performance in the first half of 2024. She highlighted that average disposable income has increased by £800 since the last general election.
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World economy resilient amid Trump tariffs but outlook looks ‘dim’, says IMF
The global economy has shown “unexpected resilience” in the face of Donald Trump’s tariffs, but the full impact is yet to be felt, and outlook for growth remains “dim”, the International Monetary Fund (IMF) has warned. n nAs policymakers gather in Washington for its annual meetings, the IMF has upgraded its forecast for global GDP growth this year to 3.2%, from 3% at its last update in July. Next year’s global forecast is unchanged, at 3.1%. n nThe forecast for economic growth in the UK has also been modestly increased, from 1.2% to 1.3% this year – though slightly downgraded next year, also to 1.3%. n n“To date, more protectionist trade measures have had a limited impact on economic activity and prices,” the IMF said in its latest World Economic Outlook (WEO). n nThe Fund cited the slow-burn economic impact of Brexit as evidence that the uncertainty unleashed by dramatic policy shifts such as Trump’s tariffs may take time to feed through into investment decisions. n n“Business investment continued to grow in the period immediately following the UK’s withdrawal from the EU and started to fall steadily only beginning in 2018,” it said. n nIt said the tariffs imposed were less extreme than initially feared after Trump’s “liberation day” announcements in April and their impact masked by households and companies bringing forward consumption to beat their introduction. n nHowever, the report pointed to a series of concerns about the global outlook, including the risk to US growth from Washington’s immigration crackdown; “stretched valuations” in stock markets; and the fact the full effects of the tariffs are only now beginning to show. n n“Looking past apparent resilience resulting from trade-related distortions in some of the incoming data and whipsawing growth forecasts from wild swings in trade policies, the outlook for the global economy continues to point to dim prospects, both in the short and the long term,” it said.And it highlights more restrictive immigration policies in a number of countries as cause for concern about future economic growth. n nIn particular, with Trump bearing down on immigration to the US, the IMF says US GDP could be reduced by 0.3%-0.7% as a result, and inflation in the worst-affected industries could surge. n n“Certain sectors of the economy where immigrants form a large portion of the labour force, such as construction, hospitality, personal services, and farm work, could experience stronger inflationary pressures than others,” it said. n nEchoing a speech by the IMF managing director, Kristalina Georgieva, last week, the WEO report also warned of the risks of a “correction,” in share prices – and a downturn investment – if markets reassess the likely gains from generative AI. n nHighlighting the fact that investors have been surprisingly unmoved by recent policy turmoil, the IMF pointed to “stretched valuations”. n nIt added that if share prices drop, “the decline in aggregate investment could be rather sharp, given that investment in datacentres and AI was a significant contributor to investment growth recently”. n nResponding to the improved forecast for UK growth this year, the chancellor, Rachel Reeves, said: “This is the second consecutive upgrade to this year’s growth forecast from the IMF. It’s no surprise, Britain led the G7 in growth in the first half of this year, and average disposable income is up £800 since the election.” n nOver the year as a whole, the IMF expects the UK to be the second fastest-growing economy in the G7, behind the US, with GDP growth of 2%. n nHowever, it said inflation is likely to rise to the highest in the G7 in 2025 and 2026. It expects UK inflation to average 3.4% in 2025, increasing from its previous prediction of 3.2%. n nUK inflation is expected to slow slightly to 2.5% next year, above the IMF’s 2.3% prediction made earlier this year. n nPresenting the report, the IMF chief economist, Pierre-Olivier Gourinchas, stressed that inflation in the UK had been boosted by temporary factors, but raised concern about the outlook. “We expect that this will moderate going forward, but there are risks – we see some upside risks,” he said. n nHe pointed to strong wage growth, as well as higher expectations of future inflation. “Households and firms in the UK are becoming maybe a bit less certain that inflation is coming down quickly,” he said. n nAsked about rising yields on UK government bonds, which have pushed up the cost of borrowing for the Treasury, Gourinchas suggested global factors were largely to blame. “We are not seeing major risks there,” he said. n nGourinchas said these upside inflation risks meant the Bank of England should be “very cautious in its easing trajectory” – meaning policymakers should not rush to cut interest rates.